By Stephanos Gregoriou, APC Sports
“Financial literacy” has become a very a popular term these days. It basically refers to having the right set of skills and knowledge that allows an individual to make informed and effective decisions with all of their personal financial resources. Specifically, it is about spending within your means, investing wisely and saving for emergencies. Although these “rules” sound simple, many people find it hard to adhere to them, especially athletes.
It is hardly a surprise to see people without financial education go bankrupt. However, it is a surprise to see multimillionaire athletes with a bunch of financial advisors on their payroll losing all their money, ending up buried in huge debt due to poor financial and investment decisions. Some athletes cannot adapt to a simpler way of life; they cannot get away from the ‘sudden wealth’ trap, the “golden investment opportunities” and the extravagant lifestyle that accompanies a professional sports career. Statistics reveal that more than 1 out of 3 NFL players and 3 out of 5 Basketball players go bankrupt or fall into severe financial stress within just two years of retirement.
Let’s take a look at some of the worst investment decisions ever made by athletes, which provide a good lesson for the younger generations.
Who said real estate investments are risk-free?
Scottie Pippen, Michael Jordan’s right-hand man made more than $120 million during his career. Unfortunately, Pippen wasn’t able to preserve the fortune he fairly earned during his outstanding career. Due to a series of bad investment decisions and poor planning along with bad timing, it is now estimated that today Pippen is worth around $20 million. Pippen’s worst investment decisions were the purchase of a $4.3 million Gulfstream private jet which without his knowing it needed $1 million in repairs just to get off the ground. Additionally, he has reportedly lost $27 million in bad real estate investments. Yet even with all of these terrible decisions, he is still enjoying a comfortable lifestyle.
If it wasn’t a fraud, it would probably be waste of money anyway
Torii Hunter, one of the greatest defenders of the MLB history made millions of dollars during his professional baseball career. However, Torii Hunter turned into a cautionary tale of financial mismanagement with his investment in a “too good to be real” opportunity. The product was an inflatable raft that sat below your furniture and could be inflated in case of a flood. For Torii the idea seemed tremendous, but in reality, it was a waste of money. Around 2004, Hunter invested $70,000 into the peculiar invention. After the initial investment the “inventor” came back and requested additionally $500,000. At that point, Hunter realized something suspicious was going on. The investment turned out to be a scam with Torii losing his initial investment of $70,000.
Another day, another business
After an incredible career in the NFL and CFL, Ismail Raghib got involved in business, failing in one after another. These included the never-before-opened Rock ‘N’ Roll Café, a series of synergy cosmetics, a religious film, a COZ Records souvenir shop, a plan to create nationwide phone-card dispensers and “It’s in the Name” shop where tourists could buy framed calligraphy. Unfortunately, Ismail lost a lot of money in failed businesses, but at least, according to him he is still doing ok financially.
Big dreams, Big money
Red Sox legend Curt Schilling had the ambition to create the largest video game company the world has ever seen and to become as rich as Bill Gates. In 2006, three years before his official retirement from baseball, he founded 38 studios. He initially invested $5 million of his own assets to start the company and as the company grew, he threw in all of his savings, a total of $50 million. Other investors contributed a total of $5 million to $10 million, but most of the funding came from a $75 million guaranteed loan from Rhode Island taxpayers’ money in exchange for moving the studio to the province and creating 450 jobs by 2013. Mismanagement, inflated wages, no product and no revenue were some of the reasons why the company could not deliver on its promises and ambitious goals. As a result, the Red Sox legend filed for bankruptcy in 2012, losing $50 million and leaving hundreds of employees without a job.
Younger athletes should be alerted from bad investments made by many athletes in the past, who have found themselves broke later in life. Spending, rather than saving, is a losing proposition. Regardless of your net worth, you have to play an active role in the management of your financial affairs. If you consider yourself a bad money manager, it’s not too late to change that and ask a professional for help.
For more information on how athletes can become investment prepared and thus avoid bad investment deals, please contact us at [email protected].
